Goal-setting and self-control

This paper addresses the role of non-binding goals to attenuate time inconsistency. Present-biased agents have linear reference-dependent preferences and endogenously set a goal that is the reference point. They face an infinite horizon, optimal stopping problem in continuous time, where there exists an option value of waiting due to uncertainty. When there is sufficient commitment to expectation-based goals, goal-setting attenuates the time-inconsistent agent’s tendency to stop too early, and may even lead an agent to wait longer than the first-best. In particular, reference dependence is strictly worse for a time-consistent agent. Notably, none of the effects of goal-setting require any form of loss aversion. Acknowledgements: I would like to thank my adviser, Roland B ́enabou, for guidance and encouragement. I also thank Wei Xiong, Stephen Morris, Jos ́e Scheinkman, Matthew Rabin, Nageeb Ali, Botond K ̋oszegi, Eldar Shafir, Ing-Haw Cheng, Dustin Tingley, Sambuddha Ghosh, Alisdair McKay, Konstantin Milbradt, Stephanie Wang, and seminar participants at Princeton University, Kellogg School of Management (MEDS), University of Southern California, University of California Santa Barbara, Texas A&M University, Cornell University, and College of the Holy Cross, for helpful comments and suggestions. All remaining errors are my own. JEL Classification Codes: